Jane Baker
As you reach different stages in your life, the need for insurance will change. Here’s how to make sure you always have enough protection.
Do you have enough life insurance? The chances are, you probably don’t. After all there’s a major shortfall in the amount of cover we need and the amount we’ve
actually got. In fact, the gap between the two literally runs to trillions (£2.3 trillion to be precise!*).
Even if you think you’ve got enough life insurance now, you’ll probably need more later on. Remember if you don’t update your policy as key events happen in your life, you risk being seriously under-insured.
Here are eleven key times in your life when you need to thinking about buying life cover:
You buy your first home with a partner
I think many of you are pretty switched on to the need to buy life cover when you first take out a mortgage. If you’re buying a home with someone else you need enough protection in place to make sure he or she won’t be saddled with the entire mortgage debt if the worst happens to you.
You have other debts – and dependents
So you’ve got your mortgage covered, but what about other debts such as personal loans and credit card balances? Make sure you take out enough insurance to cover these too, because these debts may have to be paid out of your estate. You don’t want to leave your debts behind for your family to deal with.
You get married or enter into a civil partnership
Not only are you sharing each other lives, but you’re probably sharing your finances now too. You and your partner are bound to rely on some of each other’s salary to pay your living expenses. That means you'll each need enough life insurance to cover the cost of your contributions to the home.
You start a family
Bringing up a child can cost a small fortune and it can be a pretty big drain on both parents’ income. If one income is lost, you’ll need enough protection in place so the surviving partner can continue to support the family financially.
You become a stay-at-home parent
You might think there’s no need to buy life insurance for a parent who has given up work to bring up a child. But you would be wrong. When you set up a policy, think about covering the costs of childcare and running the home in the absence of the stay-at-home parent. These expenses can run far higher than you might expect, so having extra protection to cover them can be really valuable.
You have more children
Quite simply remember to keep stepping up the amount of protection you have as your family grows.
You move to a bigger house
Bigger homes normally mean bigger mortgages, so make a point of increasing your life cover when you move to a larger property.
Your salary increases
You’ve just had a big pay rise. Congratulations! This could be your ticket to a larger home in a more affluent area or private education for your children. In other words, if you’re starting to enjoy a more affluent lifestyle, think about upgrading your life insurance policy to help your family support it if you’re no longer around.
You change your job
If you’re lucky your employer may offer death in service benefits. This could provide a valuable cash lump sum of say, three or four times your salary. Although that sounds pretty generous, death in service may not be enough to cover all your protection needs on its own.
Don’t forget death in service benefits can’t be adapted to suit your changing circumstances.
And most importantly, you’ll lose the cover when you leave your job, unless it’s available in your new position.
You reach retirement
Once you stop working the time has come to start thinking about your inheritance tax (IHT) liability. If the value of your estate is likely to exceed £312,000 (based on current rates) your family will face an IHT bill. But you can buy a life insurance policy specifically to cover these costs. IHT planning can be very complex so make sure you seek some expert help from an adviser who specialises in this area.
You rely on someone else to support you
If someone else supports you financially or provides care for you, think about taking out a life policy to insure their life. Suppose one of your children looks after you when you become older. If the worst was to happen to them, where would this leave you?
You can, in theory, insure anyone else** – as long as there is an ‘insurable interest'. In other words, you must have a genuine reason for insuring their life, and there’s evidence their death would have a negative impact on you financially.
But don’t be over-insured
Although life changes can bring greater protection needs, they won’t necessarily all apply to you. Let’s say there’s no-one in your life who depends on you financially. In that case you probably won’t need life cover at all.
Use the table in this article to help you work out how much life cover you should have overall.
Remember you can easily cancel policies you don’t need later on. For example, once you’re completely debt-free and your children have flown the nest, your protection needs should reduce. So don’t pay for something you don’t really need.
* Swiss Re Term & Health Watch Report 2008
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